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28 August, 03:33

The country of Growpaw does not trade with any other country. Its GDP is $20 billion. Its government purchases $3 billion worth of goods and services each year, collects $4 billion in taxes, and provides $2 billion in transfer payments to households. Private saving in Growpaw is $4 million. What is investment in Growpaw? a. $5 billion

b. $4 billion

c. $3 billion

d. $2 billion

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  1. 28 August, 04:02
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    C) $3 billion

    Explanation:

    Step one: calculate disposable income

    Disposable income = GDP - taxes collected + transfer payments

    Disposable income = $20 - $4 + $2 = $18

    Step two: calculate private consumption

    Private consumption = disposable income - savings

    Private consumption = $18 - $4 = $14

    Step three: calculate investment

    Investment = GDP - consumption - government purchases

    = $20 - $14 - $3 = $3
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